October fuel price update

Dramatic change in supermarket pricing leaves rural areas isolated

A dramatic change in pricing tactics by one of the big four supermarkets has brought bargain-priced fuel to towns that have gazed enviously for years at much cheaper neighbours. However, many parts of rural UK remain the land that fair pump prices forgot.

Since mid-September, average UK pump prices have fallen 2p a litre, with petrol down from 129.23p to 127.22p and diesel falling from 133.44p to 131.30p.

With falling wholesale prices indicating a further 4p-a-litre cut in petrol prices, the UK average looks set to fall below the 125p-a-litre level last seen the day before VAT was raised from 17.5% to 20% on 4 January 2011.

"Bargain-priced"

A reduction of 0.75p a litre for petrol and diesel came in the days following Sainsbury’s decision (29 September) to join Asda at the bargain-priced end of pump prices, charging less than 125p a litre for petrol. The remaining fall in prices came with Asda reacting to Sainsbury’s tactics by dropping petrol a further penny, and the impact of a significant fall in oil prices slowly dripping through to the forecourts.

Below 122p a litre

Sainsbury’s change in pricing policy added their 295 forecourts (10.3% market share) to Asda’s 233 forecourts (6.7% market share) * selling petrol more than 2p a litre below the national average and influencing the price charged by other retailers locally. East of London, supermarkets and some independent retailers are competing at below 122p a litre.

Tesco Fuel Save

In contrast, Tesco’s (16.5% market share) Fuel Save scheme, offering big savings on fuel from in-store spending, has proved very popular because it pulls in groups of shoppers that rarely spent enough in the aisle to qualify for previous voucher savings at the pump. Up until now, the AA has long criticised supermarket fuel vouchers, such as 10p off a litre for spending £60 in store, for being mostly out of the spending range of single people, pensioners and low-income groups.

Rural communities

Although this greater supermarket competition has spread the benefit of cut-price fuel to significant communities, including Basingstoke with a population of more than 80,000 and Newbury which had threatened to boycott its supermarket and other fuel stations in January 2013, smaller rural communities continue to miss out.

This week sees a 4p to 5p penalty for a litre of petrol in smaller rural towns such as Midhurst, Market Drayton, Ludlow, Tavistock and others. Drivers from these communities are more car dependent and many are on lower incomes.

Wholesale

Since the beginning of September, the barrel price of oil has fallen 15.8%, from $101 to $85. However, when factoring in the weaker pound ($1.66 at the start of September, $1.595 now), the fall is 12.4%.

However, since mid last week, the wholesale cost of petrol has fallen half a penny a day, amounting to a 4p-a-litre drop. If that is sustained long enough to get through to the pump, not only will it lop £2 off the cost of a typical tank of petrol but potentially switch £2 million a day from the fuel pump to other consumer spending.

The big question is how quickly and to what extent will retailers pass on the savings to drivers – and in which parts of the country

Edmund King, AA president

Passing on the savings to drivers

“The big question is how quickly and to what extent will retailers pass on the savings to drivers – and in which parts of the country,” says Edmund King, the AA’s president.

“This big drop in the cost of petrol feels like it should be cause for celebration – the budgets of hard-pressed workers whose wages have failed to keep pace with inflation will ease to some extent. However, pump prices in the country and small rural towns remain stubbornly high.

“These are the places that, only 18 months ago with petrol at 140p a litre, many lower-income workers faced the choice of cutting back on food and essentials or being able to afford to drive to work. That is why missing out on the benefit of falling pump prices makes them so angry.”

King adds: “Oil prices have been on the slide for weeks and fell below $100 a barrel in early September, yet pump prices have only started to show dramatic falls since Sainsbury’s change of tactics at the end of that month. This raised the anger level among drivers who weren’t able to see the impact of the weaker pound and wholesale prices that weren’t tracking falls in the price of oil, until last week. In the US, Australia and South East Asia, fuel market transparency showed the true picture, but in the UK drivers were once again kept in the dark.”

National and regional

Regionally, Sainsbury’s move to cheaper forecourt prices spread the benefit to more towns, those that haven’t enjoyed an Asda fuel presence. This has changed the map of which parts of the UK are the most expensive and the cheapest.

Scotland has become the most expensive for petrol, averaging 127.7p a litre, with London and the South East the cheapest at 127.0p. With diesel, Wales has the highest average price of 131.7p with London the cheapest at 131.1p.